Comcast’s NBC Purchase Pushes Roberts Into Entertainment

Brian Roberts, chairman and chief executive officer of Comcast Corp., is seen on Nov. 28, 2012. Part of Roberts’s decision to buy the rest of NBC Universal now instead of waiting may have to do with his sense that there’s still much more improvement to come. Photographer: Andrew Harrer/Bloomberg

NBC Universal’s performance since Comcast bought control in
2011 has made Roberts more “comfortable” with his bet on
television, film and other content, the CEO said.

“Now that we have two years of operations under our belt,
our optimism drove our decision to buy the other 49 percent
ahead of schedule,” Roberts said in a telephone interview. “We
didn’t have to do this now, but we like the businesses and we
got an attractive price.”

Buying entertainment properties runs counter to decisions
by peers Time Warner Inc. and Cablevision Systems Corp., which
decided to separate content from distribution. Roberts’s gambit
is an “inexplicably good deal” for Comcast because NBC
Universal is still undervalued, Matthew Harrigan, an analyst at
Wunderlich Securities Inc. in Denver, said in an interview.

“Comcast got it at a steal, a phenomenal price,” said
Harrigan, who recommends buying the stock. “NBCU is worth north
of $40 billion if you turned around the movie studio and got the
broadcast network to work.”

Rising Value

The enterprise value of NBC Universal is now $39.1 billion,
up from $37.5 billion when Philadelphia-based Comcast bought a
51 percent stake for $13.8 billion, according to the company.
Comcast agreed to buy the remaining stake from General Electric
Co. yesterday, more than a year ahead of its original plan. It
gained full ownership of the NBC broadcast network, cable
channels MSNBC and Bravo, and the Universal film and theme park
businesses.

Comcast shares jumped 3 percent to $40.13 at the close in
New York. The stock has advanced 46 percent in the past 12
month, while the Standard & Poor’s 500 Index gained 12 percent.
GE rose 3.6 percent to $23.39.

NBC Universal CEO Stephen Burke said two years ago his top
priority was turning around the network. For the ratings season
that began in September, NBC is second in prime time to CBS
Corp.’s network among the four major broadcasters, in both total
viewers and the 18-to-49 age group that marketers target,
according to Nielsen data. A year ago, the network was third in
the younger age group and last in total audience.

Retransmission Fees

While broadcast ratings have improved, NBC’s reliance on
football, which ended in January, and a single hit with “The
Voice” expose a lack of depth through its schedule. After
those, the network’s highest-rated show is “Revolution” at No.
22 in Nielsen’s household ratings. In the most recent week, NBC
was last with one-third the 13.2 million average prime-time
viewers of CBS.

Roberts’s optimism in NBC Universal is driven in part from
rising retransmission and programming fees that the unit can
charge other pay-TV operators for the broadcast and cable
networks. Comcast said in a conference call today it expects
fees to rise in the “low double-digit” percentages this year.
While the cable operations’ profit margins are reduced with the
rising costs, NBC Universal provides a hedge for Comcast.

‘Some Traction’

“Comcast still has some work to do on the broadcast side
of things, but they’ve shown some traction,” Andy Donchin,
director of media investments for Carat North America, an
advertising firm, said in an interview. “With NFL football
over, those ratings gains are coming back to earth now.”

Part of Roberts’s decision to buy the rest of NBC Universal
now instead of waiting may have to do with his sense that
there’s still much more improvement to come, Donchin said.

Universal Pictures, the company’s movie unit, has also seen
improvement with hits such as the R-rated “Ted” and “Dr.
Seuss’ The Lorax.” It finished 2012 with $1.47 billion in North
American ticket sales, fourth among the major studios, according
to research firm Box Office Mojo. The studio was fifth in 2011
with $1 billion in sales, and sixth in 2009 and 2010.

Comcast also released fourth-quarter results yesterday. Net
income rose 18 percent to $1.52 billion, while sales climbed
almost 6 percent to $15.9 billion.

The company lost 7,000 video subscribers in the period,
part of an industrywide trend of shrinking cable-TV viewers.
Still, Comcast would have posted a gain for the first time since
2007 if Hurricane Sandy hadn’t occurred, Roberts said.

Rockefeller Center

Comcast also raised its dividend 20 percent to 78 cents a
share annually, and said it will buy back $2 billion of stock
this year.

In addition to the entertainment assets, Comcast will pay
$1.4 billion to buy the buildings used by NBC Universal at
Manhattan’s 30 Rockefeller Center and CNBC’s headquarters in New
Jersey. The sale is likely to spell the end of the GE sign on
the iconic New York building. Roberts wouldn’t say whether he
will replace it with Comcast’s new corporate logo, which
includes the NBC peacock.

The price of the deal equates to about 9.2 times earnings
before interest, taxes, depreciation and amortization, based on
an estimated $4.27 billion in 2013 Ebitda, Paul Sweeney, a
Bloomberg Industries analyst, said in a report today. That’s in
line with other large entertainment deals.

At $39.1 billion in enterprise value, NBC Universal would
rank as the fourth-largest entertainment company, after Walt
Disney Co., News Corp. and Time Warner, he said.